Deere’s earnings fail to meet estimates

Deere (DE) announced its fiscal 2019 second-quarter earnings results before the market opened on May 17. The company reported adjusted EPS of $3.52, an increase of 12.1% YoY (year-over-year).

In the second quarter of fiscal 2018, the company’s adjusted EPS were $3.14. Its EPS failed to meet analysts’ expectation of $3.61. This was the fifth consecutive quarter during which Deere failed to meet analysts’ expectations.

Deere Plummets on Earnings Miss and Weak Guidance

Deere’s adjusted EPS growth was fueled by increased revenue and lower SG&A (selling, general, and administrative) expenses as a percentage of its sales. Deere’s SG&A expenses for the quarter stood at $946.9 million, which represented 9.2% of its equipment revenue. Deere’s SG&A expenses made up 9.6% of its equipment revenue in the second quarter of fiscal 2018. The difference implies a YoY reduction of 40 basis points.

Guidance and stock price reaction

Deere now expects its net income for fiscal 2019 to be ~$3.3 billion compared to its earlier guidance of $3.6 billion. The outlook has disappointed investors and is reflected in DE’s stock price. On the day that Deere announced its second-quarter earnings results, its stock fell 7.65% and closed at $134.82. On the same day, Caterpillar (CAT), AGCO (AGCO), and CNH Industrial (CNHI) fell 3.04%, 4.25%, and 2.5%, respectively.

Investors can indirectly hold Deere by investing in the iShares MSCI Global Agriculture Producers ETF (VEGI), which holds 13.7% in Deere as of May 20.

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